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Treasury’s carbon price up in smoke?

No amount of wishful thinking will turn the government’s outlandish forecasts on the international carbon price into reality, writes Tristan Edis of Climate Spectator.

Government public servants are continuing to put on a brave face about forecasts for the carbon price under questioning from parliamentarians at Senate Estimates.

The secretary of the Department of Climate Change, Blair Comley, is still defending the 2011 modelling undertaken by Treasury, claiming its forecast of a global carbon price of $29 (nominal) per tonne of CO2 by 2015 is “not implausible”. And in support, assistant secretary James White pointed out the European Union was looking at holding back the auctioning of some permits in an effort to reflate prices above the current level of $9.75 (€7.70).

However while it might not be completely implausible, it seems an incredible amount would have to go right to support the $29 forecast. Essentially a significant recovery of the carbon price hangs on two policy changes which the European Commission (the bureaucratic arm of the European Union) has floated.

One is a short-term fix of holding back the auctioning of a proportion of permits until after 2015. So in this case permits currently planned to be sold in 2013, ‘14 and ‘15 would instead be backloaded into 2018, ‘19 and ‘20.

According to most carbon market analysts this would reflate prices in the short term provided enough permits were held-over. The European Commission has put forward for discussion three options for the amount of permits to be set-aside: 400 million, 900 million and 1.2 billion.  The consensus view is that 400 million would do virtually nothing to improve prices but 900 million could lift prices to between around $13 to $19 (€10 to €15) by 2015. The 1.2 billion figure has largely been discounted by analysts as politically unacceptable. However ultimately that supply of permits will find itself back in the market and this will influence future expectations, meaning that prices will never get anywhere close to $29 by 2015 or even 2020.

This brings us to the second policy change which would provide a longer-term fix: the permanent removal of some of these permits and/or a tightening of the emissions target in 2020 to say a 25 or 30% reduction from 1990 levels plus locking-in further reductions for 2030. Neither the temporary set-aside nor the longer-term fix are a fait accompli, with major hurdles to surmount before implementation.

Originally the idea of back-ending the auctioning of permits was favoured because it was thought it could be implemented quickly by the European Commission changing regulations, without having to change legislation known as a Directive.

Changing the directive requires getting a vote of approval from both the European Parliament via a simple majority and also the European Council (the government ministers for each member country of the EU) which requires not just a majority, but 255 of the 345 votes held by member countries.

Changing regulations alone would instead just require the approval of a group of government officials from the member countries known as the Climate Change Committee. However even this is not an easy task as it also requires 255 member country votes.

The European Commission has since decided that it needs to change a single line in the Directive, so we’re now stuck in a lengthy process that requires agreement and co-ordination between the Parliament, the Council, as well as the Climate Change Committee.

At present the single line amendment is stalled in the European Parliament’s Environment, Public Health and Food Safety Committee (different to the Climate Change Committee), and so a vote on the amendment is not due until February 19, 2013. According to Deutsche Bank analyst Mark Lewis, it’s likely that the Climate Change Committee would not vote on the regulations until the parliament had approved the Directive amendment, so this would add further delay after February 19.

So we’ll be waiting a while before we know whether to expect even a mild recovery in the carbon price.

And as for the longer-term fix, we’ll be waiting even longer. According to Jos Delbeke, the director general for climate policy in the European Commission, it’s highly unlikely policy changes could be implemented by 2014. At a conference on October 5, Euractiv reported him as saying: ”Let’s get real: We won’t be able to do everything by 2014 like we did on the climate and energy package in 2009.” Observing on the difficulties encountered from the set-aside initiative he added: ”When I see what a limited proposal of a one-lime amendment provokes in terms of emotions, then I’m losing hope that by 2014 we could come forward with a comprehensive climate and energy package.”

Sure there’s a chance that we could have $29 carbon price by 2015 — Buckley’s chance.

*This article was originally published at Climate Spectator

9
  • 1
    Jimmy
    Posted Wednesday, 17 October 2012 at 1:47 pm | Permalink

    While right now it may seem difficult to envisage $29 by 2015 imagine the steps outlined abve combined with a reboiund in economic activity in Europe and the emergence of more trading scheme’s internationally, the price could easily rebound very quickly.

  • 2
    Scott
    Posted Wednesday, 17 October 2012 at 9:02 pm | Permalink

    Come on Jimmy…even you must have difficulty swallowing this one.
    When the carbon price increases require either Europe to sort itself out in 3 years, or weak member country voting to increase the costs of production at a time when employment is in the toilet, it is never going to happen.
    This is Pie in the sky stuff.

  • 3
    Stephen
    Posted Thursday, 18 October 2012 at 8:18 am | Permalink

    They’re economists. An economist is a person who uses information from the past to make predictions about the present.

  • 4
    Jimmy
    Posted Thursday, 18 October 2012 at 9:17 am | Permalink

    Scott - At some point in the future the European economy will improve and when it does the demand for carbon permits will pick up driving the price up. If in the mean time they act as they have indicated and remove surplus permits from the system it will drive the price up further and before you dismiss this look where the revenue for permit sales goes, govt’s who desperately need money.

    And third look at the number of economies moving towards pricing carbon, If places like California, South Korea or even China join the European market the state of the European economy will become less important.

    It may not happen in 3 years but then again it might.

  • 5
    Person Ordinary
    Posted Thursday, 18 October 2012 at 11:22 am | Permalink

    It is also possible that the European economy will never really recover, and that the era of debt driven over-consumption is coming to an end. The same goes for North America and so the rest of the world. It must end at some point because it is fundametally unsustainable.

    One optimistic scenario for what economic model emerges from the wreckage has values / prices put on all resources, not just the ones current economic theories narrowly select - ignoring the value of all the “common good” resources like water, biodiversity, social institutions, peace and everything that impacts on climate.

    This cannot happen while the World Trade Organisation and the other heads of that same monster, such as the IMF and World Bank, are empowered to manipulate the global rules and outcomes to serve the self-interest of their cabal masters. But these institutions will eventually fall when exposed, say during the next global financial crisis …

    Until that happens, a more likely and pessimistic scenario is that economic power will increasingly determine access to these rapidly disappearing resources, and weaker economies will begin to collapse into anarchy.

    If the Syrian conflict does develop into a wider war, which may occur as soon as the US election is out of the way, whatever the result, the collapse of the old system may be closer than many expect.

  • 6
    Hamis Hill
    Posted Thursday, 18 October 2012 at 2:22 pm | Permalink

    There may indeed by cause for pessimism concerning the prospects of the “old economies”, so named by Adam Smith as those in which all the economic niches had been filled and in which the only chance to escape generations of poverty was gambling.
    In the late 1770’s that old economy was China.
    So perhaps some focus on the enabling technologies which broke the mould for China and also how future enabling technologies might change the game?
    A favourite prospect is some sort of solar or renewable energy powered method of extracting water from the atmosphere on the spot.
    There is no reason why an accountant or a lawyer might not invent such a device.
    With water and sunshine in sufficient supply there is no reason to suppose that people will not realise a more sustainable lifestyle.
    Those who prefer tales of doom will probably benefit from reading Aeschylus’ Prometheus Chained wherein humans are saved from the wrath of the “Environment?” or the Sky god Zeus by the intervention of “Fore thought” or, in Greek, Prometheus.
    Principall y by stealing fire from heaven and giving it to humans.
    Perhaps humans will continue to use Prometheus’ gift of science to save themselves.(Clue: read the play)
    The Worshippers of Zeus-Jupiter-Jove will not be happy!

  • 7
    Person Ordinary
    Posted Thursday, 18 October 2012 at 4:33 pm | Permalink

    We know what to do - there is no development of technology required.

    It is a matter of self-interest dominating collective interest.

    The answer is simply more accountability to truth, so the global political process better serves global collective interest.

  • 8
    Person Ordinary
    Posted Thursday, 18 October 2012 at 4:36 pm | Permalink

    … but technology surely can help, and inevitably will, once we set the incentives right

  • 9
    Mithra Fernando
    Posted Thursday, 18 October 2012 at 6:18 pm | Permalink

    Whether the global Carbon price of $29 per tonne as modelled by the Treasury seems plausible in 2015 or not, Mr. Abbott seems to continue on a decietful strategy to link the Carbon Tax to the electricity charge increases and any other thing that he can cling to.

    Since Mr. Abbott’s interview with Leigh Sales on the ABC’s 7:30 on 22nd August, 2012, the labyrinth of canards seems to conitinue. During the above interview where Mr. Abbot tried to link the BHP decision to defer Olympic Dam expansion project to Carbon Tax he was asked whether he had read the BHP’s statement. about their decision. Mr Abbott answerd ‘no’.
    Next day, 23rd August, Mr. Abbott said he actually did read the statement the day before, on the 22nd August at 3:45pm. Then he offered a personal explanation to the Parliament:

    “Several times the Prime Minister in question time today claimed that I had not read the BHP statement issued yesterday. This is false. I read it at about 3.45 yesterday afternoon. My ‘no’ in an interview last night was a denial of assertions that the interviewer was making about the statements of Marius Kloppers. I made this position absolutely crystal clear on three occasions this morning, and the Prime Minister and minister should not assert to be true what they know is false.”

    Then Mr. Joe Hockey came on Channel Seven’s Sunrise Program on 24th August and told that he was with Mr. Abbott when he read the BHP statement.
    Mssrs. Abbott’s and Hockey’s whereabouts at 3:45pm on 22nd September can be easily found in the Hansard records, which show Mr. Hockey was lying, as Mr. Hockey was in the parliament chamber from 3:37pm to 4:03pm and Mr. Abbott was nowhere near him.

    It is high time that Mssrs. Abbott and Hockey learnt a lesson from their appalling attempt to link the Carbon Tax to the decision by BHP in regard to deferment of the Olympic Dam expansion project. But “Crying the Carbon Tax Wolf” seems to remain at the centre of Coalition Strategy in the parliament.

    As quite recently as a week ago, on 11th October Mr. Abbott produced an electricity bill received by a woman in Perth, Ms. Hetty Verolme. Trying to create a link between the recent rise in Ms. Verlome’s electricity bill to the Carbon Tax, Mr. Abbott rushed to claim that the woman “nearly had a heart attack” when she saw her electricity bill from June to August has increased by $800 owing to the Carbon Tax.

    A quick look at the back page of the bill clearly showed that Mrs Verolme had in fact used nearly twice as much electricity over the most recent period compared with the previous one. Surely the bill went from $736.25 to $1563.70 owing to the excessive usage of power.

    Trying to cling on to anything to attack the government by deliberately misleading Australian public is not a good strategy and cannot help Coalition in holding the Government accountable and to ensure the government policies are beneficial in making Australia competent in the world to remain prosperous into the clean energy future.

    For the sake of sustainable competent and prosperous clean energy future for Australia the Coalition should come clean in their arguments for an alternative low-Carbon strategies including any alternative models to predict with precision the global price on Carbon by 2015.

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